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Archive for September, 2008

The Eye of the Storm

September 30, 2008 Leave a comment

The Eye of the Storm… Tuesday September 30. That’s how it felt like for most of the day today, a quiet day in between the 777 day drop we had yesterday and Thursday when the house takes up the rescue package bill vote. The bounce that we are had today started from the open, and the fact that it held for more than 1 hour was a nice indication that today was not going to be as bad as yesterday. Market seems to be content in doing a classic 50% retracement from yesterday’s close, but buyers started getting more aggressive after a story on FASB rules came out.

 

Today’s afternoon rally was influenced by talk that the SEC is looking into changing the FASB accounting rules on mark-to-market. Markets like the idea, hey why not? Keep changing the rules until something works. But in my opinion the cat is out of the hat, we know what this paper is NOT worth, eventually the markets adjust for risk one way or another, a rally just based on this won’t last. The VIX index at these levels 40 will continue to exaggerate any moves in either direction.

 

The other factor was the end of quarter concerns for Hedge Fund redemptions; did the funds have enough cash to meet demand? Or would they have to sell equities in order to raise cash? From the order flow we are seeing today, it seems to indicate they have prepared themselves for those redemptions.

 

Bottom line is we are still waiting on the package to be voted on in congress, the uncertainty is still with us until then. Even if we get the package, the market still has to work out all the details of what comes next. Will new accounting rules really change the dynamics of these markets? Only time will tell.

 

For intra-day traders we continue to have a series of historical events that keep us on our toes. None-the-less all the same rules apply: Discipline and Following a plan. Without out these two components a trader will get lost in all the news and volatility of these markets. Tomorrow is another day, and today was a sunny day on Wall Street, but isn’t that the case when you are in the eye of the storm?

 

www.keystonetradinggroup.com

day trading stop losses

September 29, 2008 Leave a comment

When day trading for a living if you expect to have a long career you should always make risk management your first priority. As one of the partners of the fastest growing proprietary trading firms in NYC we get to speak to many would be professionals.

I say “would be” because in our eyes trading to pay your bills is very different than trading when you have a full time job and don’t need the profits to pay the bills. We interview many traders who come to Keystone Trading Group to negotiate a different deal than the one they currently have or maybe they are trading from home in a E Trade account and want more buying power. Either way it only takes about 3 minutes for Erik and I to know if we want to add that person to our team: Are they negotiating a big stop loss or are they seeking a permanent home and a reputable firm?

Remember this: amateurs look at potential profits first and professionals look at risk first. We always get traders who want to come in and negotiate a huge stop loss for the day. “I need to be able to lose this amount if I trade for you!” We say OK that sounds fine, can you show me a P&L of how much money you have earned over the last 6 months to the last 12 months? The answer is usually no believe it or not. Or they show us a P&L from 1999 (not kidding)

Keystone Trading Group is built on learning to trade well and managing risk. Earning a consistent living comes from trading well, not from being lucky once in a while. It is a business model that will help us last a long time. Give us a call if you want to a part of that long term success. (212) 594-8900

http://www.keystonetradinggroup.com/

Day Trading Technical Analysis

September 26, 2008 Leave a comment

9/26/2008     

Day trading Technical Analysis:         

This market is totally driven on this $700 billion bailout package.  Is the bailout plan completed or not that is the question and until this is agreed by both parties we will continue to have uncertainty in the markets. One thing to monitor is the credit markets with the Libor and the 3 Month  T bill continuing to widen which indicates the unwillingness of banks to lend money to each other which becomes a major warning sign.  Please keep in mind if they do agree on the bailout plan we could rally 50 S& P points.  Use extreme caution when trading the markets!

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 Dow Industrials:      Support: 10,800 –  11,120         Resistance:  11,500 – 11,700

The Dow Industrials need to hold the September 18 low. 10,459   

S&P 500:  Trend line Support of 1195 – 1180-   Resistance at 1220 – 1254

S&P 500 is in a down trending channel and is bouncing within the channel.

Spy:  Support  116.53  – Resistance 123.01

Spiders are also in a down trending channel and is also bouncing with in the channel.

QQQQ  Support 40.19   Resistance 42.60

Q’S have been one of the weakest index.  This index is showing signs of breaking the low.

Iwm:  Support  67.77    Resistance 71.37

Iwm stil holding up rather well but is showing signs of breaking down.   

XLF:  Support 19.80  Resistance 22.50

Xlf  is now within the channel after the ban on financial stocks.  We wait to see what happens after the ban has been lifted.

Use extreme caution when trading.  The charts are all over the map so be patient and wait for a set up.

Quote of the day:

“The only real risk is the risk of thinking too  small.”

Frances Moore Lappe

Keep in mind the trend is your friend.  Have a great day!!

 http://www.keystonetradinggroup.com/

 

Paper Trading

September 25, 2008 Leave a comment

We speak to hundreds of people per month, many with years of trading experience and many who are aspiring to be traders. In any case, quite often we hear them say, “I have been trading a demo account for the last year, and I have returned 40% so far”, “I am ready to trade and I want you guys to back me based on my track record”.

We can appreciate the fact that many people aspire to be traders’, yet, these people are either under funded to open an account or they just fear the reality of losing any of their money. In any case, Demo trading is worthless! It is great to get the look and feel of the software platform, however, trading and making money on a demo DOES NOT translate in success in the real world of trading.  There are many reasons why this is the case. Some demos are in fact not even real time quotes. The Sterling Trader Pro platform that we use does have real time quotes, however, if you place an order you are going to get “filled” whereever you place the order. In real live trading, the market moves fast and in many cases you may never get filled on an order that you placed.  Also, when trading a demo, you can trade 10k shares of GOOG, RIMM, AAPL, etc and have no fear because their is no money, and no emotions on the line.

If you are one of these individuls, trading a demo and analyzing your trading successs by this measure, STOP! Open a live account and start with 100 shares of a few slow moving stocks and test your trading plan or call us to find out how you can trade our capital.  But either way, don’t waste another minute on a demo account and start real live trading, it truly is the only guage to determine your success!

a simple filter for your day trades

September 25, 2008 Leave a comment

In today’s high tech world sometimes the best method is the least complex. I feel very strongly about that when it comes to day trading for a living. It can be easy to get lost in the newest software and the most sophisticated system for sale. There is even software on most platforms that will let you back test your ideas. There is nothing wrong with back testing but don’t fall in to the trapp of optimization and tweak your system to death for the perfect trade.

There is no perfect trade. No matter the system or method you use, you still have to manage the trade after you get in. How you manage a trade for both profit or loss is your real edge in trading and ulitmately how you will earn a consistent living, not the new Intel quad four processor or the 12 monitors you use.

That being said there are patterns that you can use to put yourself in the best position for profitability. One of the most consistent edges we have founs is yesterdays high and low. These areas represent the extreme buyers and sellers were able to push a stock the day before.

When you cycle through your list every day you should decide to make a tradde in those stocks outside of yesterdays range first. Why> The anser is simple, if a stock is trading inside of yesterdays high and low there is no new order flow in that stock today and therefore not a big edge.

Can you make a day trade inside of yesterdays range? Yes of course but ask your self “is that the best trade available?” Is there a better edge than this scenario? Go back over your charts and take a look at the follow through that stocks exhibit once they clear yesterdays range, I think you will be pleasantly surprised that this simple filter will add quite a bit of money to your bottom line.

http://keystonetradinggroup.com/

Trading the week of the Bailout!

September 23, 2008 Leave a comment

A couple of weeks ago I was writing about how glad I was to leave the dull days of summer behind. Well I can say I have not been disappointed. The volume and the volatility we have had in the last two weeks has been Unbelievable. Each Friday I tell our traders to get some rest and read the news to prepare themselves for yet another week of finding opportunities for us intra-day traders.

 

This week we have been looking at the following:

1-     The debate in Congress about the $700bn bailout package.

a.       What will congress add to the package?

b.      How long will they take to pass the package?

c.       Be ready for a no go on the package. You just never know.

2-     Any new stocks on the no Short list.

a.       Every day they have added 2-3 stocks.

b.      When will the measure end? Oct 2nd, I doubt it.

3-     Price of Oil

a.       It would be nice to see some stability.

4-     Financials stocks. Any pressure here results in the need to raise more capital.

a.       In particular: GS MS WM WB

5-     Volatility

a.       Are we seeing a trend for lower volatility readings in the VIX index?

b.      Has been as high as above 40, needs to move lower than 30.

 

Any one of these events will change the direction of the market on a dime. Everybody needs to be aware of these factors, and not get married to a position; this is a fast moving market – be prepared to take advantage.

 

Due to the high VIX index we have seen large swings in the markets. Of our traders that are fast with executions, we have seen them making money scalping all day long. Our traders that are looking to hold a position for a longer period we have recommended adjusting share size so that they can accommodate a larger stop loss price. In today’s markets a 5min bar could be as large as $1, and in context to the movement in the last days it really isn’t that much, but it is enough to shake some traders out of their positions. The lesson that traders are learning is the need to let a position breath more is resulting in the trader taking a smaller position. Other wise you find yourself trading in the right direction, with the trend, but not making any money because you get stopped out too early.

 

www.keystonetradinggroup.com 

day trading and government intervention

September 22, 2008 Leave a comment

Day trading through the sub prime crises early in 2008 and now the financial meltdown of the last few months has made for incredible trading. The day trading environment has been incredible if you know what you are doing. If you are not on top o fyour risk management you can blow out your account in a few mismanaged trades.

The Keystone Trading Group mentors have actually had to slow down and reduce share size for a couple of our more experienced traders. The reason is simple, they were starting to revenge trade because the market action was so volatile and order flow WAS changing on a dime it was hard to be comfortable with a size position. This is the point of mentoring, no matter your experience every once in a while you can need someone to make sure you stay on track.

Now on to my opinion about the government intervention last week. The government buys 79% of AIG and they let Lehman go out of business. I have a problem with this as a small business owner, not as a trader. I am getting sick of the government bailing out big business, on top of that they can still cash big checks on the way out the door. It is ridiculous.

They ONCE AGAIN believe short sellers are responsible for these poorly managed (out of control risk management, can anyone say long term capital?) Let me ask you this, if there was nothing wrong fundamentally with those companies don’t you think someone would have come in bought them? The short sellers had a reason to short them, the balance sheets were a joke. Off balance sheet assets are a joke to the accounting system.

Here is my point, if there were real buyers they would stop the stocks from going down no matter how many short sellers there are. This was proven about 8 weeks ago when they had the list of 19 stocks that were on the list of “non shortable.” They had a huge rally and then went straight back down after the ban expired.

These stocks are being sold, just as much as they are being shorted. If the government stuck to regulating everyone, not just small firms instead of creating DIFFERENT rules for bigger companies this would never have happened. Looking back off balance sheet assets with no market for those assets is a joke.

http://keystonetradinggroup.com/